Fine wine investment market starts 2011 with strong performance

Written by Ray Clancy - Investment International

Thursday, 10 February 2011 08:36

The fine wine market started 2011 with a strong monthly performance with positive returns in January while other stock markets have remained relatively weak, according to a new report. The Liv-ex 100 rose by 2.9% and the Claret Chip by 3.4% and year on year, the indices are up 40.8% and 52.4% respectively. Evidence is emerging that the market is in a new phase in terms of favoured brands. Lafite, in particular, has underperformed the other first growths for two months in a row, and at precisely the time when Chinese demand might have been expected to be high in advance of the New Year celebrations. Lafite prices have risen, but only around 2.5% over the two months on average across a range of vintages. It is a welcome trend according to Andrew della Casa, director of The Wine Investment Fund as the concentration of Asian demand on this particular brand has distorted index returns over the last 18 months and led to a number of misleading stories about conditions in the wider market. The spotlight in January was taken by Haut Brion and Mouton Rothschild, both increased by an astonishing average of around 9%. Some specific vintages rose by much more, notably 1995 and 1996. Mouton 1996 recorded a remarkable 32% increase in just one month. ‘Mouton is now emerging as the most likely candidate to be the next Lafite, no doubt at least in part due to shrewd marketing associated with the presentation of its bottles. However, over the last six months Haut Brion is the strongest performer of the five first growths,’ explained della Casa. The Wine Investment Fund (TWIF) experts anticipated these trends. They rebalanced many of their portfolios to increase the proportions of Haut Brion and Mouton, and reduce the proportion of Lafite. TWIF’s performance in January was +6.53% net of all fees and expenses. ‘This is an extremely impressive result both in absolute terms and compared to the Liv-ex 100 index. TWIF maintains more balanced portfolios than is reflected in the composition of the Liv-ex indices, which have tended to be Lafite-heavy. As the broader market outperforms Lafite, so TWIF’s portfolios tend to benefit to a greater extent,’ said della Casa. He expects that the shift to Haut Brion is likely to continue. ‘Looking across vintages, last month saw maturing, higher quality vintages from the 1990s finding buyers. Along with the shift in the favoured chateaux, this provides some evidence that either demand from traditional markets is now becoming more significant, or Asian palates are maturing, or both. The pattern is by no means clear cut, as some weaker vintages, particularly 1997 and 2001, continue to perform well,’ he added. The auction market also returned with a bang in January. Three major sales in Hong Kong realised a combined US$25 million. TWIF has repeatedly stressed the importance of exchange rates, particularly between the renminbi and sterling, on the fine wine market, which remains predominantly a UK market. ‘A rising renminbi allows Chinese buyers to pay more in sterling terms without affecting the cost to themselves. In this context it is interesting that China last month confirmed that its policy was to allow a continued gradual strengthening of the renminbi. While the target currency for the increases will be USD, all other things being equal a similar effect would be seen in relation to GBP. With Chinese demand constituting a majority of the business of major wine merchants, this would only lead to further upwards pressure on prices,’ said della Casa. Last month saw the China’s state owned agriculture and food company Cofco buy a minor Bordeaux property, Chateau de Viaud in Lalande de Pomerol. Although the property itself is relatively insignificant, this is perhaps an indicator of a wider long term cultural commitment to the region and to fine wine in general, he commented. 'With this backdrop we retain our central forecast of 21% growth in prices for 2011 as a whole. Given January’s results we think our upside or optimistic scenario of 30 to 40% is somewhat more likely than previously, and conversely that our pessimistic scenario of 0 to 5% is somewhat less likely,' added della Casa.

Hong Kong auctions kick off 2011

Hong Kong auctions kick off 2011 (As posted on the Liv-ex blog.)

The 2011 auction calendar kicked off in earnest this past weekend, with Hong Kong playing host to three headline sales in just two days. The Sotheby’s Lloyd Webber (LW) auction on Saturday sold 100% of its 746 lots, attracting HK$41.8 million (£3.4 million), whilst the Sotheyby's Winebank (WB) sale on Sunday amassed HK$68.8 million (£5.6 million). Meanwhile, Acker Merrall sales on the 21st and 22nd saw bidders splurge HK$84.6 million (£6.8 million) on more than 1,200 lots of premium Bordeaux and Burgundy.

These Hong Kong auctions’ success is yet another patent indication of the Bordeaux market’s current buoyancy in Asia. If we compare auction prices (including buyer’s premium) with Liv-ex trade prices (represented by the Liv-ex Mid Price, our mark-to-market value), we see that buyers in Hong Kong were willing to fork out an average 15% premium for the First Growths.

Twenty-five wines were sold across all three auctions in the 12x75cl unit size, giving us an interesting chance to compare the results. Although the best prices were generally achieved at the Sothebys WB sales, there was a great deal of volatility in the prices achieved, with all three auctions seeing their share of winners and losers.

Overall, buyers payed 9% above the Liv-ex Mid Price at Acker, 8% above at Sotheby's LW and 22% above at Sotheby's WB.

Of course, the results below include the buyer's premium; 22% at Acker and 25% at Sotheby's. If we remove this and look solely at the hammer prices, we find that the sellers actually achieved around 10% less than the Liv-ex Mid Price at the Acker and LW sales and achieved little more than a par score at the Bordeaux WB sale.

*Most recent available: for First Growths 1996-2007, 25/01/2011, for all others 31/12/2010.

Asian wine investment 'not evenly spread'

Asian wine investment is not evenly spread across the market, but is concentrated on a small number of specific wines, one expert has noted.

Chris Smith, investment manager at the Wine Investment Fund, explained that because of this, while the fine wine market rose by around 40 per cent last year, many Lafite vintages increased 60 to 100 per cent.

This, he explained, wine investors can use to their advantage and time purchases and sales appropriately.

While reports have commented on the huge surge in wine investment from Chinese buyers, Mr Smith also remarked that other Asian 'tigers' such as Singapore and Korea are also keen investors.

However, he explained that "sales of Bordeaux to China have doubled every year since 2005, overtaking the UK and Germany to become the number one destination for exports of Bordeaux by volume".

In addition, as 80 per cent of Asian buyers drink these wines, Mr Smith noted that this is "good news for the investment market because it means that the dynamic of falling supply as the wine is drunk continues to operate".